Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Mortgaging the Future


Consumers tapping retirement savings to make ends meet.


With home equity lines tapped and credit cards maxed out, Americans are staving off financial ruin by seeking out the true lender of last resort: Themselves. The Wall Street Journal reports financial firms are seeing a startling rise in loans taken from 401(k)s and other retirement plans.

According to a report by the Center for Retirement Studies, 18% of workers dipped into their nest eggs in 2007, up from just 11% in 2006. Soaring debt is the most commonly cited reason for taking such action, with over 49% of respondents indicating they braved the high fees associated with pulling money out of their 401(k)s to pay off debt.

Aside from the obvious implications of sacrificing hard-earned retirement dollars, if borrowers changes or loses their job, they must repay the loan immediately. If that's not possible -- which is likely given the circumstances -- income tax on the withdrawal is due immediately plus a 10% penalty .

Financial planners caution against using retirement dollars to pay off bills or debt, but this trend may not be as dangerous as conventional wisdom would suggest. We're told to hoard vast sums of money since the only respectable way to enjoy our Golden Years is tooling around a planned desert community in a BMW golf cart. Lavish trips and fine dining? The only true way to reflect on years of toil and sacrifice.

Professor Depew often discusses changing social moods. Although for many this may really be a last-ditch effort to stave off foreclosure or bankruptcy, the subject's worth evaluating from another angle. People are more apt to change when nudged -- or shoved -- in the direction of new spending habits. Envisioning a more modest retirement may be a welcome departure from the culture of more is more.

There are many options when mulling how to spend one's retirement; not all require following the herd to Scottsdale or Palm Springs. Consider the option of renting a villa on the beach in Mexico for $500 a week. It would take 20 years to spend the $500,000 or so it takes to buy a decent spot on an American coastline... And the tacos are incomparably better.

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos